Infosys’ Palo Alto office relegated to ‘listening post’

Analysts and headhunters had seen Palo Alto as the nucleus of Infosys’ new strategy, even though the overwhelming majority of its workforce was in India.Jochelle Mendonca | ET Bureau | October 26, 2017, 07:27 IST

Infosys’ Palo Alto office, where the future road map for India’s second-largest software services company was being drawn, is now being termed as a ‘listening post’, as non-executive chairman Nandan Nilekani pivots the company’s centre of gravity back to Bengaluru.

The move, a result of the strategy review promised by Nilekani when he returned in August, is the most prominent change announced at the company’s quarterly results on Tuesday in addition to the renewed emphasis on execution.

“I think this is a strategy, which has come about by a process of both top-down and bottom-up work. It’s a strategy which everybody has bought into,” Nilekani told analysts at a conference call.

Under former CEO Vishal Sikka, a phalanx of the company’s top executives, mostly recruited from German software maker SAP, were based out of Silicon Valley and were incharge of significant parts of Infosys’ strategy.

Experts are of the view that while the decision to return to its roots could help restore stability at the company, which has weathered a period of severe management upheaval, it could also hamper the business transformation required to keep pace with a rapidly changing scenario for outsourcing companies worldwide.

“In the short run this is likely to improve morale and execution, in the long run it is unclear that a leadership team steeped in the existing industry model will be able to lead Infosys into a leadership position in the digital marketplace,” Peter Bendor-Samuel, CEO of IT consultancy Everest Research, told ET in an email.

Nilekani, however, was emphatic that the company would “have a strong team looking at long-term horizon technologies and at the latest developments”.

The Nasdaq-listed company — which has been battling a management crisis for most of 2017 after its iconic founder NR Narayana Murthy levelled charges of poor corporate governance leading to the departure of Sikka and three board members — has also seen the exit of key executives from the Palo Alto office in the past few months.

Palo Alto was also a high-cost centre for Infosys, ET has previously reported. Abdul Razack, global head of Infosys Platforms, was paid Rs 5.26 crore in FY17. Sanjay Rajagopalan, senior vice-president and head of design & research, was paid a little over Rs 5.2 crore. Navin Budhiraja, SVP and head-architecture & technology, earned over Rs 5.3 crore. Ritika Suri, executive vice-president and global head of corporate development, had a gross salary of over Rs 5.1crore. All of these executives and several others from the Palo Alto unit have left over the past five months.

LENS ON STRATEGYAnalysts and headhunters had seen Palo Alto as the nucleus of Infosys’ new strategy, even though the overwhelming majority of its workforce was in India. But now industry observers point out that the strategy Infosys is continuing with was created by executives who have mostly left the company.

“Newer initiatives have been driven by external talent (largely ex-SAP) brought in by previous CEO Dr Vishal Sikka. Since Dr Sikka resigned, there have already been four senior management exits who were heading these newer initiatives. Further churn could push back newer initiatives, which could impact longerterm growth,” Ashwin Mehta, analyst with Nomura Securities, said in a note.

Infosys has said most of the work being done by the SAP executives who have left has been reassigned to existing company executives.

“We have redistributed the responsibility to appropriate people, who are already doing part of that function. For people like Abdul and Navin, the people under them are still part of Infosys, we’ve a strong team. So it’s a mixed thing. So we have had a few exits, but we have been able to quickly replace them with very minimal impact,” UB Pravin Rao, interim CEO of Infosys, told analysts.

The company replaced Pervinder Johar, who joined as CEO of its Edgeverve unit last year but left subsequently, with Nitesh Banga, a 20-year Infosys veteran. The different parts of the portfolio handled by Sanjay Rajagopalan have been redistributed to the various units within Infosys, Rao said.

Analysts are also worried that the departure of the top deck would lead to concentration of roles between the executives who remain at the company. Infosys’ role concentration had been an issue between 2013 and 2015, the last time the company experienced significant management churn.

“I think our presence in Palo Alto will be a very critical presence going forward, and we’ll have the right team and the right leadership to take advantage of that location,” Nilekani said.

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